All Forum Posts by: Dan H.

>my yearly cash flow after mortgages + escrow is approximately $30K on all my homes. 

Your definition of cash flow does not match mine as I include vacancies, maintenance, and cap expense in my cash flow numbers.  As long as you realize that you are not including those expenses and that in reality your $30K cash flow is significantly less when taking those into account all should be fine.

I think you could benefit from reading up on cap expenses just to make sure that you have full realization of these costs.  The cap expenses are coming.  You point to your heirs eventually getting the properties and doing as they please but someone (you, your heirs, or an eventual buyer) will eventually get hit with cap expense costs.

>Appreciation means nothing to me as I'm not selling and I don't do 2nd mortgages

I have only one property with a second and that is because the second loan is artificially low (it is at 3%).  It does not mean that I do not take equity out of the properties as I see fit.  I refinance the first loan with another first loan.  I can then use the money from the refinance as I desire but I typically use the bulk of it for further investments.  I try not to let my equity in any property get too high because it is not leveraging the asset but I will not refinance into a significantly higher interest rate (I do not need the money bad enough to want to pay more interest for it).

Good luck

@Jack Slattery Not to point out the obvious but rent - (mortgage + escrow) does not equal cash flow. In my market that unit is negative cash flow on my calculations (not by much). For self managed I use 5% vacancy + 5% maintenance + $300 cap expense for average size rental SFR (think ~1000'). I believe San Diego cap expense is higher than most other markets so maybe $200 cap expense is appropriate in your market. Using San Diego cap expense I get 750 - 414 - 75 - 300 = ($39). If cap expense is $200 in your market then positive $61. Without good prospect of appreciation (hopefully value and rent will both appreciate) I would not purchase that property at positive $61; not worth the effort to manage unless there is going to some positive appreciation.

Good luck

@Alain Perez-Majul  I will justify it in San Diego by stating every property I have owned at least 3 years has done significantly better than 9% annual return (100% of the properties not an average of the properties).  I have not calculated my average return on those properties but I suspect it is likely over twice the 9%.  This is even using what some believe is a high cap rate (I believe it to be close to accurate) of $300/unit per month.  Look at the numbers for San Diego, LA, SF.  I have not been an exceptional in this market; pretty much everyone who has owned at least 3 years has done better than 9% annual return.

It seems you are prepared for some negative cash flow.  I agree with your assessment of Poway school district especially the elementary schools.  There is not a school district in the state that is as large or larger that performs better on the standardized testing.

I have purchased properties in San Diego county since 1992.  I have purchased near market highs (as well as near market lows).  Every San Diego property that I have owned at least 3 years (including those purchased near market highs) is worth more than $100K above purchase price.  I suspect @Thomas S. does not understand the So Cal market or the demand.   Add in PUSD and I cannot imagine it depreciating long term.  As I suspect you are aware PUSD residences sell fast and even at the worse of the housing crisis they sold fairly fast.

Just be prepared for some negative cash flow (not too much: it will be slightly positive until large expense).

A little over a year ago I placed an offer on a duplex in Poway and did not mess around.  I went in immediately at asking + $30K.  The realtor did not even acknowledge the offer as apparently we did not make the list of offers to even confer with.  Sad part is that I was willing to pay more but was not given the chance (I thought my offer would at the very least get an opportunity for a subsequent offer).  If I had purchased it at $50K over ask I would still be up as the property has appreciated that much in the last year.  There simply are no multiplexes in PUSD that hit the market (I believe none have hit the market in the last year).

Good luck

I do not agree with @Jay Dewberry on what purchase price should be used.  I think purchase price used should be $200k ($100k owed + 2 * $50k ($50k being half of equity).  This also come fairly close to $216k - 6% realtor fee.  

If you were not going to rent it you would be expecting around $50k.  It should be included in purchase price on any calculations.  

@Don Johnston I think 10% is low for repairs, cap expense, and vacancy. My cap expense includes flooring, cost to replace bathrooms and kitchens when their life is up in 30 years, HVAC, stove, oven, etc. I have no experience on cap expense for condos but I use $300 month for small SFR in San Diego so I would think cap expense on condo is likely somewhere near $100 month for a condo.

Good luck. 

@Nick Carter not to burst you bubble but rent - (mortgage plus escrow) does not equal cash flow.  You have no vacancy rate, maintenance, or cap expense.   Read up on cap expenses. I have no experience on cap expense for a condo but on small single family home in San Diego I use $300 month. WAG for condo is $100/month.  If I use my WAG cap expense + 5% vacancy + 5% maintenance you actually have small negative cash flow.  On the positive you built equity, property is likely to appreciate, and you have learned a lot and will continue the learning process.  

So I think you did fine but it is very unlikely to be cash flowing for a while.  

Good luck.  

@Justin R. curious where this beauty is located???

I think you will make a fine profit.  You originally indicated the park manager had potential issues with you flipping (which I did not understand at all).  How did that work out?

Good luck

@Andrew B. I would suggest you become an expert on one area of San Diego so you know the property values, rents, turn over, cap expenses, etc.  The area I specialize there are a few pointers but it may be specific to my chosen area of San Diego.

First REI will be a learning event. It is not that critical to get great cash flow as you will be getting an education and unlike some other views I believe San Diego prices will continue to increase. After you have acquired the knowledge from the first REI you will want subsequent properties with good cash flow but all of my San Diego properties have made me more money from price increase than cash flow.

Good luck

My advice:

- Get your degree.  Get a job that pays well leveraging your degree.

- Start with a house hack of a multiplex in a place you are willing to live for a few years.  Be less concerned about having significant cash flow but think of it as a learning opportunity (but you do not want it to bleed cash either - Neutral in So Cal would be fine).

- Repeat the house hack until you have a family.  On the subsequent house hacks you will be more knowledgeable and can be more selective.  Much of the learning has been accomplished so you really want these to cash flow.  If possible keeping all the properties along the way.  Once you have a family and want to spend time with your children you likely do not want to be located that near the tenants.  Ideally you have solid cash flow to at least supplement the income that is derived from having the degree. 

- With family if you like REI consider BRRR or flips.

- At any time you can decide to quit the job related to degree and work REI full time. This would depend on being successful with the second bullet, whether you like you regular job, if you like REI. My wife just quit (this month) her non-REI job because she could and she enjoys the REI more.

Good luck

You indicate you have a 401K but did not indicate the value of the 401K.  Many 401K have a self investing option that you could potentially use to invest in properties but if you go this route discuss it with a accountant/financial advisor/tax adviser first.

without money you can look to partner if you find a really good deal.   Good deals are not easy to find so if you find one you deserve to be compensated as does the entity taking all the risk by providing the money.  With 0 track record and 0 capital you will be at a disadvantage when it comes to negotiating the partnership as not only would the partner be taking on the risk by investing the money but with 0 track record the risk is greater than if you had done this before (or better a dozen or two times before).

You could also find a deal and wholesale it.  Your reward for effort would be high but the reward would not be as high as sticking it through to end game.

As for you finding reasons to not get started I believe many of us have that issue.  For me it is the belief I do not have the time to take on anything additional and I have let some good opportunities go by even though I knew they were good opportunities.  Whatever the reason for not getting started you have to get by it at least once to get started (by definition).  BTW few RE are 0 risk.  Anything can happen.  It is easy to find reasons not to start (too busy, too risky, no money, no experience, etc.).  You have to jump in at some point even when there will be reasons not to.

Good luck.